Clause 29

Local Transport Bill [Lords] – in a Public Bill Committee at 11:15 am on 6th May 2008.

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Extension of maximum period of quality contracts

Photo of Graham Stringer Graham Stringer Labour, Manchester, Blackley

I beg to move amendment No. 127, in clause 29, page 26, line 36, leave out subsection (3) and insert—

‘(3) Subsection (2) is omitted.’.

The amendment continues the debate that the hon. Member for Wimbledon introduced and would make the length of quality contracts more flexible and potentially longer, in line with the process in rail franchising and that in Greater London.

There are two issues here and—with your permission, Lady Winterton, as we are speeding along this morning—I will discuss the length of quality contracts and the scheme itself, which is related to this issue. Listening to what the hon. Gentleman said in proposing the previous amendment and looking at this amendment, we see that while quality contracts are a considerable improvement on what we have, they are by no means a perfect mechanism. There is a lot of evidence—not just in this country, but around Europe—that quality contracts would and will improve the quality of bus services. However, there are problems, which members of the Committee will have seen with rail franchises and, indeed, the franchises for the tram system.

If a franchise is let to a private operator to achieve all the benefits of commercial operation—response to the market, the innovation that the hon. Member for Wimbledon mentioned and investment that allows that innovation and response to happen—the contracts  necessarily become front-loaded. The commercial operator will want to spend the money and get the return on it at the beginning, and towards the end of the contract there is deterioration.

The amendment says that the process should be in line with permissive EU legislation, which would allow 50 per cent. extension to the contracts—that is normal in rail franchising and in London—so that they could be extended from 10 years to 15. There would be an immediate benefit in doing that in stabilising the whole of the public transport system that relies on buses. If a quality contract were coming to its end and the operator was unsure about retaining that contract, whether because they had not been very good or because there were aggressive competitors in the market, there would probably be less interest in it. However, that would be exacerbated if the scheme itself came to an end at the same time, so the marketplace would not know what sort of scheme was going to be in place.

We come back to the point, is what is good for London good for the rest of the country? It is assumed that in London the schemes for franchising buses go on and that when it comes to the end of the scheme in 10 or 15 years, the market will know what to apply for. What is envisaged in the Bill—the scheme itself is covered in more detail in later clauses, but it is relevant to the amendment as well—is the scheme having to go back to square one and be looked at again. That seems disruptive and it will bring a lack of stability to the system.

The amendment says that it should be possible to extend 10-year franchises by 50 per cent., as is allowed under EU regulation. The stability of the process would be helped if the scheme was allowed to continue unless there was some very good reason that it could not, which could be picked up in the local transport plans.

Photo of Rosie Winterton Rosie Winterton Minister of State (Regional Affairs) (Yorkshire and the Humber), Minister of State (Department for Transport)

My hon. Friend’s amendment relates to clause 29. As I said earlier, the clause extends the maximum length of each individual quality contract from five years to 10. At present, while a scheme can run for 10 years, a contract can run only for five. We have responded to points made to us by local authorities and others that it is more appropriate for it to be able to run for the same period as the scheme.

I understand the points that my hon. Friend has made, but under the system that we propose a quality contracts scheme will replace deregulated services with a series of contracts and, at the same time, suspend the free market in the area. The task of setting up a regulated network from scratch, which is what we are talking about, is rather different from adapting an existing one, which is more the case that we have in London. That is why the Bill provides for a review point.

After the period for which the scheme is approved, which may not exceed 10 years, it must be reviewed. If the authority is minded to extend it, a further consultation must take place to ensure that it has delivered at least some of what was promised, and that a scheme is still relevant and likely to deliver more. If, however, the scheme is not intended to expand in scope and will not involve new areas or new bus services, it  can go ahead without approval, although there will be an appeal mechanism in it. If it is going to expand, the approval of the board—or in Wales, the Welsh Ministers—will still be necessary.

The amendment would affect the length of individual contracts within a quality contracts scheme. The 2000 Act extends the contracts from five years to 10; the amendment would allow further extension. However, we consider that the best way forward is to set the contract length at the same length as the overall scheme. We believe that much can change in 10 years—whether it is demand for services, travel patterns, technology and so on. It is not unreasonable to require authorities to review quality contracts schemes at least once a decade. If the duration of the scheme is to be limited to 10 years, the duration of individual contracts must be similarly limited.

I know that my hon. Friend the Member for Manchester, Blackley believes that there should not even be a 10-year quality contracts scheme duration, and therefore that it is reasonable to extend the contracts themselves. However, for the reasons I have set out, we believe it reasonable to ask local authorities to look at the schemes after 10 years to ensure that they are delivering what was promised and that if they are to continue they can do so without having to go through a whole approvals board if they are not particularly different. We believe that that is the right balance to strike, and in view of that I hope that my hon. Friend will withdraw his amendment.

Photo of Graham Stringer Graham Stringer Labour, Manchester, Blackley

I welcome the increase in the length of the contract from five years to 10, although I would quibble with the phrase “removing a free market”. One kind of market is being changed to another where there is off-road rather than on-road competition. It is important that we continue to make that point. What I do not think my right hon. Friend the Minister really addressed—I am happy to give way now or wait until we consider this on Report—is the fact that the coincidence of the end of that period and the end of the scheme is bound to bring uncertainty and instability to the market. I would be grateful if my right hon. Friend reflected on that, either now or at a later stage. How could current operators and, potentially, new operators take decisions in their own companies to invest if they did not know what was going to happen? The coincidence of the end of the scheme and the end of the contract represents a serious point.

The second point is the length of the contract. As hon. Members on both sides of the Committee know, I am not the greatest advocate of EU regulation—by and large, I think we are better off without most of it—but I do not understand why in the rest of the country there should be less flexibility and less application of European laws, including the ability to extend those contracts by 50 per cent., than is the case in London and within the rail franchising system.

Regarding my right hon. Friend’s final point, on which I ask her to reflect, I completely understand that this is a new scheme. The London scheme changed slightly over the period after privatisation. There had been a publicly-owned system and there was a relatively smooth transition to a franchise system, whereas in this instance we are moving from a very lightly regulated  system to a franchise system. That, I accept, is a much bigger change within the market. I also accept that it may need to be assessed. What I do not necessarily accept is that this needs to be assessed at the end of 10 years. Why cannot it be dealt with while the scheme is going on? If there are failures or if extensions are needed—as my right hon. Friend correctly points out, that might be the case—that might be dealt with in the local transport plans, which would be consulted upon.

I am happy to come back to those points on Report, but I think that there are real market issues. That is a different debate from the one about whether to accept quality contracts. If one accepts quality contracts, there is a real practical debate here about how to help the market to work to maximum effect.

Photo of Rosie Winterton Rosie Winterton Minister of State (Regional Affairs) (Yorkshire and the Humber), Minister of State (Department for Transport) 11:30 am, 6th May 2008

The 10-year time period provides a good opportunity to review the scheme itself and, if an authority had decided to let a contract for the full 10 years, to say what would be the new parts of a new tendering process. Running the two together would not necessarily bring instability but could provide a good opportunity to look at how the scheme is operating, to see whether it had delivered and whether there should be different specifications in a new tender process. The two might fall quite well together.

With regard to EU regulations, I understand that the Community regulation to which my hon. Friend refers recognises the difference between, for example, a design, build and operate system for a light rail system compared with a bus contract. There is a period of 15 years for rail contracts and 10 years for bus contracts. Community regulation does specify difference in the maximum.

I have listened to the points made by my hon. Friend but it is still within the local authority’s ability to vary either of the two periods if it wishes to do so. There is a maximum when an authority would be required to review the success of the scheme. If there were no major changes to the way the scheme was to be run it could go ahead without having to go an approvals board. I hope that reassures my hon. Friend.

Photo of Graham Stringer Graham Stringer Labour, Manchester, Blackley

It does, in parts. As I understand it—I do not mean to be sarcastic—the London bus system, which does not have trams or trains, has the right under EU legislation to extend those contracts if it wishes. I do not see why that should be changed.

There is a genuine difference between us on assessment of how the market might respond to the ending of both the contract and the scheme at the same time. My right hon. Friend has been very helpful and open-minded in this debate and I ask her to remain so for further discussions on these practical issues before we consider the Bill on Report. They are not matters of principle but of making the scheme work, and on the basis that we can return to the matter on Report and that there will be ongoing discussion, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Question proposed, That the clause stand part of the Bill.

Photo of Stephen Hammond Stephen Hammond Shadow Minister (Transport)

As the Minister said, clause 29 has the effect of extending the maximum duration of the contract from five to 10 years by amending section 130 of the 2000 Act. As I said while we were considering amendments Nos. 255 and 256, I am unsure whether the move can be justified given that quality contracts are an uncertain beast at the moment. The ramification is that the clause and the succeeding clauses, far from extending the quality contracts rules from five years to 10, might in a number of cases extend the quality contract to 20 years. That is an extraordinary provision for something that is untried and untested. It creates an unnecessary restriction on the market and, therefore, I will be asking my colleagues not to support the clause.

Photo of Rosie Winterton Rosie Winterton Minister of State (Regional Affairs) (Yorkshire and the Humber), Minister of State (Department for Transport)

Once again, the hon. Gentleman is showing his complete hostility to the idea of quality contracts. As I have said, there is a review of the quality contracts scheme after 10 years. Yes, if it has not changed substantially, it can continue. We think that is the right balance to strike, but the hon. Gentleman—because he does not really believe in quality contracts in the first place— is simply opposing the clause to illustrate more clearly than ever that Conservative Front Benchers are hostile to these ideas.

Question put, That the clause stand part of the Bill:—

The Committee divided: Ayes 10, Noes 4.

Division number 14 Nimrod Review — Statement — Clause 29

Aye: 10 MPs

No: 4 MPs

Ayes: A-Z by last name

Nos: A-Z by last name

Question accordingly agreed to.

Clause 29 ordered to stand part of the Bill.